From edible oil and consumer goods to flour, commodities and manufacturing, the group built a strong reputation through entrepreneurship, market understanding, and execution capability. With annual revenues estimated at around Tk32,000 crore and employment for nearly 25,000 people, City Group became a symbol of local business success.
Yet today, the same conglomerate finds itself at the centre of a banking sector rescue effort involving 36 banks and more than Tk26,600 crore in outstanding loans.
While banks have expressed confidence that City Group remains a viable business, the need for a coordinated restructuring raises an important question: What pushed one of the country's most respected business groups into such a difficult position?
The answer appears to lie not in a single event but in the convergence of several factors: Aggressive expansion into unrelated sectors, excessive dependence on bank borrowing, the depreciation of the Taka, large-scale investments with long gestation periods, energy supply shortage, and the absence of the visionary leadership that once guided the group.
One of the most common mistakes made by successful conglomerates is assuming that expertise in one industry automatically translates into success in another. Many business groups begin with a core competency, generate strong cash flows, and then expand into sectors far from their original strengths. Over time, managerial attention becomes fragmented, capital allocation becomes inefficient, and profitable businesses end up subsidizing weaker ventures.
City Group appears to have followed a similar path.
In recent years, the group expanded beyond its traditional trading and consumer goods businesses into capital-intensive sectors requiring large upfront investments with long payback periods. Such diversification can create future growth opportunities, but it also increases financial vulnerability when funded largely through debt.
The second factor is the diversion of bank-financed liquidity into large projects that do not generate immediate cash flows. Banks generally provide working capital facilities to support inventory purchases, imports and day-to-day operations. Problems arise when short-term financing is used to support long-term investments or projects.
This creates a mismatch between cash inflows and repayment obligations. While new projects may promise future returns, banks expect regular repayments today. As investment commitments grow, businesses often become dependent on fresh borrowing simply to maintain operations. The result is a gradual deterioration in liquidity rather than an immediate collapse.
The pressure became even more severe as the Bangladeshi Taka experienced significant depreciation over recent years. For companies heavily dependent on imported raw materials, commodities and capital machinery, exchange-rate losses can be devastating.
A loan facility that initially appeared manageable in dollar terms suddenly becomes much larger in taka terms. Import costs rise sharply, financing expenses increase, and working capital requirements expand significantly.
Businesses that previously operated comfortably within approved credit limits often find themselves requiring substantially larger facilities merely to maintain existing operations.
For highly leveraged groups, this creates a dangerous cycle. More borrowing becomes necessary not to expand but simply to survive. Eventually, banks reach their exposure limits, and liquidity shortages begin to emerge.
This appears to be another key element behind City Group's current stress. As the value of the Taka declined, the group's financing requirements increased while the capacity of banks to extend additional credit became constrained by regulatory lending limits and rising sectoral risks.
The death of the group's principal promoter may have further intensified these challenges. In many family-owned conglomerates, the founder serves not only as chief strategist but also as the ultimate decision-maker who is capable of balancing risk, allocating capital, and maintaining lender confidence.
Institutional structures often remain weaker than they appear from the outside. When a founder or dominant promoter exits the scene, businesses frequently struggle with succession, strategic clarity and decision-making discipline.
Expansion projects that were initiated during periods of optimism can become difficult to manage without the leadership that originally conceived them.
History shows that many large family-owned business groups across Asia have encountered difficulties following leadership transitions. The issue is rarely a lack of capable successors; rather, it is the absence of a central figure who commands the confidence of banks, suppliers, investors and employees simultaneously.
What distinguishes City Group's situation from many other distressed corporate cases is that banks do not appear to believe the crisis stems from fraud, asset stripping, or overseas fund diversion. Senior bankers involved in recent discussions have publicly acknowledged that the group is facing a genuine business crisis rather than a governance scandal.
This distinction is critical. A liquidity crisis can often be resolved through restructuring, fresh working capital, and operational reforms. A crisis caused by fraud is far more difficult to repair.
The decision by banks to appoint an independent auditor, establish a review committee, and consider board-level oversight reflects an effort to separate viable businesses from non-core assets and restore financial discipline. If implemented properly, these measures could provide a roadmap for recovery.
The City Group episode offers an important lesson for Bangladesh's corporate sector. Growth is desirable, but expansion must remain aligned with managerial capability or legacy strength, cash-flow generation and capital structure. Excessive reliance on bank debt, especially for long-term projects, can transform even successful enterprises into financially fragile institutions.
For policy-makers, bankers, and business leaders alike, the challenge is not merely to rescue City Group. It is to ensure that future corporate growth is built on stronger governance, prudent leverage and sustainable expansion.
Otherwise, today's rescue operation may become tomorrow's recurring crisis.
Mamun Rashid is a banker and economic analyst. Views expressed are the writer’s own.
